Exchange Rates and Energy Sector Reset in Context
Ghana’s energy sector has long been entangled in a complex web of financial distress, driven largely by structural inefficiencies, under-recovery of costs, and, notably, foreign exchange (forex) volatility.
At the center of this crisis is the Electricity Company of Ghana (ECG)—the primary revenue collector and off-taker in the power value chain. ECG’s balance sheet has persistently suffered under the weight of escalating arrears, liquidity shortfalls, and high exposure to US dollar-denominated payment obligations.
Historically, the depreciation of the Ghana cedi (GHS) has significantly undermined ECG’s solvency and worsen by PURC’s exchange rate setting that falls below the market rates. With most Power Purchase Agreements (PPAs), fuel supply contracts, and service-level agreements priced in US dollar, every cedi lost in exchange rate value translates into a higher domestic currency burden on ECG. This mismatch between GHS revenue and USD obligations has created a perverse financial loop, triggering delayed payments to Independent Power Producers (IPPs), power system unreliability, and recurring state bailouts.
However, a rare and powerful macroeconomic reversal is underway in 2025. Since the beginning of the year, the GHS has appreciated by over 10% against the USD, reversing nearly four years of sustained depreciation. Buoyed by a combination of IMF disbursements, renewed investor confidence, cocoa and gold export inflows, and tighter monetary policy, this appreciation is delivering a direct fiscal windfall to ECG and the broader energy sector.
The cedi appreciation presents a practical opportunity to ease ECG’s solvency crisis, improve sector liquidity, and restore balance to a value chain that has been trapped in a deficit-financing cycle.
Why FX Appreciation Matters to ECG Mechanically?
To understand the real-world impact of the cedi’s appreciation, consider the financial obligations of ECG. The utility is required to pay monthly invoices to IPPs and fuel suppliers for generated electricity and fuel supplied. A significant proportion of these invoices—particularly capacity charges, fuel costs, and some ancillary services—are denominated in USD.
Let’s examine a simplified example:
- ECG receives a monthly invoice of USD 50 million from a set of IPPs.
- If the GHS/USD rate is 12, ECG needs to mobilize GHS 600 million to pay this bill.
- With the current rate appreciating to 10.80, the same invoice now costs only GHS 540 million.
- This translates to a direct saving of GHS 60 million per month, assuming stable dollar prices.
Over a fiscal year, this amounts to GHS 720 million in avoided forex-adjusted costs, which could instead be used to:
- Reduce payment arrears to IPPs per the PPA payment terms,
- Fund urgent network upgrades,
- Support metering and revenue protection programs, or
- Settle part of ECG’s legacy debts.
This is not just theoretical. ECG’s unaudited 2024 financials reveal that over 35% of its total expenditure was forex-linked. A 10–12% appreciation in the exchange rate, therefore, has an outsized impact on its expenditure profile—one that could shift the utility from near-insolvency to short-term viability if managed properly.
In addition, the appreciation reduces the cost of fuel imports handled through intermediaries like VRA, Ghana Gas and GNPC, whose natural gas and light crude oil transactions are also dollarized. Reduced local currency funding requirements ease pressure on ECG’s monthly cash flow obligations and free up internal resources for system investments.
Strategic Implications and the Future
1. Immediate Liquidity Relief and Enhanced Solvency
The GHS appreciation directly improves ECG’s working capital position. With less GHS needed to meet USD invoices, the company can settle obligations on time, restore payment discipline across the value chain, and avoid penalties or interest charges. Timely payments also rebuild trust with IPPs and fuel suppliers, ensuring continuity of supply and avoiding the risk of load-shedding from curtailments.
2. Potential to Reduce Government Transfers
The Government of Ghana, through the Ministry of Finance routinely injects liquidity into ECG to support dollar-based payments under the Energy Sector Recovery Programme (ESRP). With the GHS appreciating, the fiscal burden of these transfers is materially reduced. This creates space in the national budget for social investments or capital expenditure in the sector rather than operating subsidies.
3. Opportunity to Settle Legacy USD Debt
ECG and other entities like GRIDCo and VRA have legacy debts denominated in USD. The forex gains realized now can be strategically channeled to accelerate repayment of these loans, reducing interest costs and forex exposure over the medium term. Proactive debt servicing under current exchange rates would create long-term savings and creditworthiness improvements.
4. Seed a Forex Stabilization Mechanism
Given the cyclical nature of currency movements, the current windfall should not be seen as permanent. A portion of the GHS savings realized should be diverted to establish an Energy Sector Forex Stabilization Fund, managed under strict governance rules. This fund can be used to cushion ECG and other sector actors during future periods of GHS depreciation.
5. Policy Recommendation: PURC and MoEn Action
Regulators like the Public Utilities Regulatory Commission (PURC) and the Ministry of Energy and Green Transition (MoEnGT) should urgently reassess tariff and cost recovery frameworks. The forex savings should be accounted for transparently, allowing for recalibrated tariffs that reflect actual utility costs without placing excessive burden on consumers. Additionally, this window provides an ideal context for pursuing cedi-denominated renegotiations of new PPAs.
The Turning Point of the Energy Sector and ECG Reset
The appreciation of the Ghanaian cedi in the first 5-month of 2025 is not just a currency event—it is a strategic inflection point for Ghana’s energy sector. ECG, which has long been suffocated by forex-linked payment obligations, now has an opportunity to stabilize its finances, reduce arrears (depending on PPA payment terms), and reclaim a path to operational solvency.
However, this opportunity must be seized with foresight and urgency. Without strategic financial planning, structural reforms, and regulatory coordination, the gains from the GHS appreciation may dissipate into short-term relief without lasting impact.
The task before ECG and the Ministry of Energy is clear: institutionalize the gains, convert savings into structural improvements, and prepare the system for resilience against future currency shocks.
In the words of former U.S. Treasury Secretary Larry Summers, “Crises create opportunity. But so do recoveries—if used wisely.” Ghana’s energy sector, especially ECG, now stands at such a crossroad.
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DISCLAIMER: The Views, Comments, Opinions, Contributions and Statements made by Readers and Contributors on this platform do not necessarily represent the views or policy of Multimedia Group Limited.
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